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2 Stocks To Buy With Upside Up To 22%, Says HDFC Securities

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On Friday, the domestic equity market indexes BSE Sensex and Nifty 50 were trading at new all-time highs. Asian stock markets are trading flat today as traders evaluate the threats China poses to the global recovery and the possibility of less Fed support. Here are recent top stock recommendations from HDFC Securities based on a two-quarter time horizon.

 

Buy Solar Industries with upside of 16.24%

Buy Solar Industries with upside of 16.24%

Solar Industries (SIL) is a dominant participant in the Indian industrial explosives market, with a global manufacturing base in six nations.

The brokerage expects a gain of up to 16.64 percent in the shares of the chemicals company, with a target price of Rs. 2290 per share, up from the last trading price of Rs. 1963.25 per share for the next two quarters.

According to HDFC Securities, the company's exports and foreign division has been a key growth driver, with a 19 percent CAGR from FY12 to FY21. Apart from that, in 2010, SIL entered the defence market and began producing highly synergic consumable items such as multi-mode hand grenades, HMX (High Melting Explosives) & HMX compounds, composite propellants, pyros, igniters, fuses, and rocket integration, among others.

Valuation & Recommendation:
 

Valuation & Recommendation:

"We believe, within the Industrial explosives space, SIL is a unique company which has strong pricing power and has been exhibiting consistent better than industry performance for more than 2 decades. Going forward, we expect SIL's revenue, EBITDA & PAT to report a growth of CAGR 23/24.5 and 31% respectively over FY21-23E.

Segment-wise we expect Defense revenues to reach Rs. 500Cr by FY23 up 4x over FY21 while exports and overseas are expected to grow by 20.7% CAGR for next 2 years. Apart from these, domestic business like CIL/ institutional and trade channel are expected to grow at a CAGR of 12.5/13.9 and 13.5% respectively over FY21-23E, " the brokerage has said.

The stock, according to HDFC Securities, is currently valued at 37 times FY23E earnings. It believes the stock's fair value is Rs. 2130 (40x FY23E) in the base scenario and Rs. 2290 in the bull case (43.5x FY23E).

Buy Indian Bank with upside of 22.49%

Buy Indian Bank with upside of 22.49%

Indian Bank is one of the better-managed PSU banks, requiring only modest government assistance to generate cash. It has a long track record of outperforming the rest of the PSU banking group.

The brokerage expects a gain of up to 22.49 percent in the shares of the chemicals company, with a target price of Rs. 170.50 per share, up from the last trading price of Rs. 139.20 per share for the next two quarters.

According to the brokerage, due to the high corporate book, we remain cautious on the asset quality front. It has a high BB & below rated book with a lot of exposure to infrastructure, NBFCs, and other sectors. For the next few quarters, even management is cautious about the retail and MSME segments. However, the low cost of capital, in combination with the low valuation, gives us confidence in the long run.

Valuation & Recommendation:

Valuation & Recommendation:

"We expect Indian Bank to grow its loan book at 9% CAGR while NII and Net profit are expected to grow at 7.5% and 39.5% (due to lower base) CAGR respectively over FY21-23E. ROAA is estimated to improve to 0.8% in FY23E from the current 0.6% in FY21 and RoE could rise to 12.4% from 9.9% in FY21.

We expect healthy recoveries and upgrades in next two years. Asset quality trend of corporate and MSME would be the crucial monitorables. Most of the concerns arising out of pending writeoffs out of restructured/SMA accounts are already in the price. We have assumed higher recoveries and lower slippages going forward. NIMs may also start stabilizing around 3% level," the brokerage has said.

According to HDFC Securities, over the next two quarters, investors can buy Indian bank at Rs.139 (0.46xFY23E ABV) and add more at Rs.121 for a base case fair value of Rs.158 and a bull case fair value of Rs.170.5.

Disclaimer

Disclaimer

The above stocks are picked from the brokerage reports of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. Please consult a professional advisor.

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